Speakers Urge Debate On Hydro-Quebec Privatization

Nickle's Energy Analects
29 August 2007

A conference today in Montreal was told that partial or full privatization of Hydro-Quebec would produce greater value for the Quebec's water resources.

Such a move would also enhance Quebec's energy efficiency and improve the health of its public finances, according to Marcel Boyer, vice president of the Montreal Economic Institute, and Claude Garcia, former president of Standard Life.

Deregulation of the North American energy market and a wider opening of the electricity sector on a continental scale have broadened the debate on new options for reform that could benefit all Quebecers, they suggested.

In Garcia's view, selling Hydro-Quebec would enable Quebec to eliminate its public debt, evaluated at $122.6 billion. A debt-free Quebec would save a total of $5.5 billion annually in interest charges, allowing for a 33% cut in income tax, he said. It would also create a highly competitive tax environment, stimulating economic growth, according to Garcia.

In the last few years, electricity rates have risen far more slowly than prices for oil products, and Quebecers are paying well below market value for their electric energy, he said. Electricity rates in Toronto are 75% higher than in Quebec and in New York electricity costs three times as much. Raising rates to market prices would result in energy savings and the kilowatt hours left unused in Quebec following a rate hike would easily find buyers in export markets, said Garcia.

Boyer would not go as far, suggesting that another option would be to consider a partial privatization of Hydro-Quebec. Selling 25% of the company, for example, would suffice in obtaining greater value for the province's energy resources, he said. This could be done by issuing shares and amassing a large quantity of new funds to finance future investments. Some of this could also be used to reduce taxes or repay part of the debt.

With the new shareholders represented on the board of directors, maximizing the value of shareholders' equity and selling electricity at market prices would lie at the core of Hydro-Quebec's mission, said Boyer. This change in mandate "would deny governments the right to reach into Quebecers' collective inheritance and squander their energy resources," he said.

Hydro-Quebec would have incentives to invest in any money-making project and to guarantee sound management of operations.

A rate increase could be spread over several years and if the government wishes to protect or subsidize certain groups of citizens or businesses, such as low-income households or aluminum producers, it would have to do so through direct subsidies rather than by manipulating electricity prices, according to Boyer.

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